Risk Premia and the Social Cost of Carbon: A Review

26 Pages Posted: 8 Jan 2012

See all articles by Carolyn Kousky

Carolyn Kousky

Resources for the Future

Robert E. Kopp

Rutgers, The State University of New Jersey - New Brunswick/Piscataway

Roger M. Cooke

Resources for the Future

Multiple version iconThere are 2 versions of this paper

Date Written: 2011

Abstract

Reducing greenhouse gas emissions not only lowers expected damages from climate change but also reduces the risk of catastrophic impacts. However, estimates of the social cost of carbon, which measures the marginal value of carbon dioxide abatement, often do not capture this risk reduction benefit. Risk-averse individuals are willing to pay a risk premium, an additional amount beyond the difference in expected damages, to reduce risks. The authors review methods used and estimates obtained for calculating a risk premium to be included in the social cost of carbon. While more research is needed in this area, work to date suggests a positive, and potentially substantial, risk premium on the social cost of carbon is warranted.

Keywords: climate change, social cost of carbon, risk premium

JEL Classification: Q54

Suggested Citation

Kousky, Carolyn and Kopp, Robert E. and Cooke, Roger M., Risk Premia and the Social Cost of Carbon: A Review (2011). Economics: The Open-Access, Open-Assessment E-Journal, Vol. 5, 2011-21. Available at SSRN: https://ssrn.com/abstract=1981100 or http://dx.doi.org/10.5018/economics-ejournal.ja.2011-21

Carolyn Kousky (Contact Author)

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
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Robert E. Kopp

Rutgers, The State University of New Jersey - New Brunswick/Piscataway ( email )

HOME PAGE: http://www.bobkopp.net/

Roger M. Cooke

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States
202-328-5127 (Phone)

HOME PAGE: http://www.rff.org/Cooke.cfm

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